Working Paper Number

2019-20

Journal or Book Title

UMass Amherst Economics Working Papers

Publication Date

2019

Abstract

Standard open economy macro models with unemployment predict a contractionary short-run effect of international capital inflows. Empirical evidence, on the other hand, often associates such inflows with short-term booms, and developing country policy makers frequently go out of their way to welcome foreign capital. Employing a portfolio balance framework, this paper distinguishes between international financial (i.e., bond) and "real" (i.e., equity) flows to explore the different consequences for capital accumulation that may follow over the medium run. The presence of external economies of scale generates multiple equilibria, and different kinds of capital flows may push investment in one direction or the other for sustained periods of time.

License

UMass Amherst Open Access Policy

Included in

Economics Commons

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